NZ dollar surges against euro on EU comment Cyprus could be template

Tuesday 26th March 2013

The New Zealand dollar surged to a seven-month high against the euro after a European official said terms of a bailout for Cyprus, where uninsured depositors will face losses, could serve as a template in other euro-zone countries.

The kiwi climbed to 65.01 euro cents, the highest since August last year, from 64.05 cents at 5pm in Wellington yesterday. The local currency traded at 83.52 US cents from 83.47 cents.

Stocks in Europe fell and the euro sank to a four-month low against the greenback after Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro-zone finance ministers, told Reuters that future bank restructurings could seek funds from uninsured depositors. Dijsselbloem later issued a clarification that banking rescues had to be tailored to specific circumstances.

Dijsselbloem's comments that the Cyprus banking tax could be a template "rattled confidence," said Mike Jones, strategist at Bank of New Zealand. "European sentiment dived" on the prospect of investors having to bear the brunt of the pain on the bailouts.

Jones said the news was being treated as a European shock rather than something that could derail the global economy, hence the kiwi and Australian dollar had held their ground against the greenback.

The New Zealand dollar may trade in a range of 83.30 US cents to 84 cents today and 64.70 euro cents to 65.20 cents, he said.

Merchandise trade figures for February today are expected to show the local economy eked out a $17 million trade surplus from a deficit of $305 million the previous month, while the annual gap widened to $1.48 billion from $1.3 billion, according to a Reuters survey.

The trade-weighted index rose to 76.68 from 76.43 and the kiwi gained to 55 British pence from 54.75 pence.

The local currency fell to 78.57 yen from 79.13 yen and traded little changed at 79.88 Australian cents.

BusinessDesk.co.nz

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